The Minnesota Court of Appeals ruled Monday that a controversial wind farm proposed for Goodhue County does not have to abide by setback rules established by county commissioners because state regulators had good cause to disregard them when it granted a permit for the project.

The appeal was filed by a group of citizens who have been fighting the 50-turbine energy project for two years, arguing that noise and "shadow flicker" from the 400-foot high turbines could harm the health of nearby residents.

In its decision, the appeals court said that state law requires the state Public Utilities Commission (PUC) to accept county ordinances -- unless the commission has good cause not to apply them.

In this case, the county wanted the company, AWA Goodhue Wind, to put the towers at least 10 rotor diameters back from property lines, or about 2,700 feet. Instead, in 2011 the PUC decided after a three-day hearing before an administrative law judge that the setback only had to be 1,500 feet.

The county's rule would have made the project impossible to construct, the PUC found, and there was no evidence that shadow flicker or noise would cause harm to residents. County officials testified that the 10-rotor setback was designed to eliminate all noise and flicker exposure in order to avoid the costs of modeling and measuring the actual impact.

The citizen's group, called the Coalition for Sensible Siting, said it was disappointed by the court ruling, but had not decided whether to appeal to the Minnesota Supreme Court.

Meanwhile, the wind company is still trying to meet a separate set of requirements laid out by the PUC and the federal government on a plan to protect local wildlife. The project has raised concerns about its potential impact on eagles, because it is considered a high-use area for the federally protected birds and some species of bats.

Construction has been delayed while the company conducts research to determine the potential impact on wildlife, and how the project can be designed to protect them, a requirement of the PUC permit.

It is also applying for a permit with the U.S. Fish and Wildlife Service that would protect it from legal action if any eagles are killed by the turbines.